Public Choice

, Volume 121, Issue 1–2, pp 131–155 | Cite as

Optimal Central Banker Contracts and Common Agency

  • Georgios E. Chortareas
  • Stephen M. Miller


This paper considers the contracting approach to centralbanking in a simple common agency model. We suggest thatcentral banker contracts that do not consider the possibilityof more than one principal existing are incomplete contracts.Such incomplete contracts can be a poor form ofmonetary policy delegation under common agency. We develop amodel with two principals – society (government) and ageneric interest group, whose objective conflicts withsociety’s ex ante preferences by incorporating an inflationarybias. We determine when the government-offered orinterest-group-offered contract dominates the central banker’sdecision. The results largely depend on whether theinterest-group-offered contract is written in terms of outputor inflation.


Public Finance Interest Group Central Banker Agency Model Common Agency 


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Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Georgios E. Chortareas
    • 1
  • Stephen M. Miller
    • 2
  1. 1.International Economic Analysis Division, Monetary AnalysisHO-2 Bank of EnglandLondonU.K.
  2. 2.Department of EconomicsUniversity of NevadaLas VegasU.S.A.

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